real estate market, with strong economic growth
( 38 percent), rising interest rates ( 27 percent) and
continued suburban development ( 20 percent) highlighted as the top three factors. The effects of these
factors will likely be the most dramatic in Tier II cities
such as Charlotte, North Carolina; Phoenix; Salt Lake
City; and Portland, Oregon — all of which still have
ample room for growth.

Nonbank lenders will continue to benefit from this
surge in commercial activity as mortgage brokers look
for additional sources of financing. In fact, on average,

42 percent of the brokers polled said they approach
more than six lenders when looking for commercial
financing, which can encompass a broad range of
business models and financial institutions. This suggests
that the vast majority of borrowers and brokers in the
commercial real estate space are now looking at non-bank lenders as potential sources of financing.

More than 40 percent of the mortgage brokers
surveyed at the MBA event said they use nonbank
lenders to finance 25 percent to 50 percent of their
commercial deals, and 29 percent said they opted for
nonbank lenders for 50 percent to 75 percent of their
deals. These numbers are a testament to how much
the alternative-lending industry has grown and matured
since the financial crisis.

It’s easy to see why alternative lenders today are so
popular. Of the survey respondents who said they will
seek more financing from nonbank lenders in 2018, nearly
half ( 49 percent) said it was because of the financing
flexibility offered by nonbank lenders. Transparency
( 18 percent) and speed ( 18 percent) also were cited as
primary reasons by survey respondents for choosing
nonbank lenders.

Regulations imposed on banks to prevent them from
becoming over-leveraged, such as the Dodd-Frank Act
and the Basel III capital requirements, have caused these
large financial institutions to focus on only the most
lucrative commercial real estate projects. Increased reserve requirements made it less profitable for many
banks to pursue small and midsized loans or borrowers.

As a result, many borrowers were squeezed out of
the market and needed alternative sources of capital.

With traditional lenders largely constrained within the
commercial real estate space, a multitude of alternative lenders have popped up in the market.

The tech edge

Just as regulations were tightening, technology was
improving. Enhanced internet capabilities and access
allowed alternative lenders to fill the gap left by the
banks. These alternative-lending companies were
willing to take on smaller loans that traditional lenders ignored and were able to greatly accelerate the
lending process for borrowers through the use of
tech-enabled platforms.

Past Articlesby Gary Bechtel

Nonbank financing expands the opportunities
for you to attract and retain clients

Commercial mortgage brokers, as the intermediaries between commercial real
estate investors and lenders, are expected to always stay on top of what’s
new in their industry. The challenge, however, is that industries are always
changing, often permanently.

The lending industry is no stranger to change. For centuries, lending was
dominated by banks, life insurance companies, credit unions, pension
funds and other so-called “traditional” lenders. But over the past decade,
two seismic shifts have forever changed how we think about borrowing
and lending. That has allo wed a new player to emerge in the industry — the
alternative lender.

President, Money360

Illustration by
Dennis Wunsch

By Gary Bechtel

View these articles and more atScotsmanGuide.com“Capitalize on the Alternatives,”

November 2017

“Leap Into Alternative Lending,”

January 2017

“Rethink Alternative Lending,”

March 2018

Instead of waiting weeks or even months for a bank
or other lender to decide on a loan application, borrowers using tech-enabled alternative lenders can
often apply in minutes and receive a loan decision in
as little as 24 to 48 hours. On top of improved speed,
technology-based platforms generally include online
deal trackers or managers. These tools allow mortgage
brokers and borrowers to keep track in real time of the
status of a loan, thereby delivering an improved customer experience.

While technology plays a big role in the success of
online lenders, they are not solely reliant on it. Alternative lenders understand that each loan decision is
unique and requires human expertise. An algorithm
will never be able to account for all the nuances that
go into underwriting a commercial property.

For this reason, the most successful alternative
lenders combine technology, particularly for an initial screen, with a dedicated team that has years of
experience underwriting and structuring commercial
real estate loans. This dual approach ensures that each
borrower receives a loan that fits their particular needs,
increasing the chances that it is repaid and the lender
recovers its capital.

Direct-lender advantage

As more borrowers and brokers enter the commercial
real estate market, it is important to select the right
lender. First, all mortgage brokers need to understand
the difference between a direct lender and a crowdfunding platform. In the simplest terms, a direct lender
makes loans directly from its balance sheet while a
crowdfunding platform aggregates capital from a combination of institutional and retail investors before it can
fund a loan.

Nonbank direct lenders are becoming an increasingly
attractive option for mortgage brokers and borrowers
who want to eliminate the middle man. Instead of
potentially waiting days or weeks for funding from outside investors, direct lenders provide an added level of
certainty that a transaction will be completed — a vital
characteristic in an industry where timeliness is critical.

On top of their expertise within the alternative-lending space, direct lenders also offer other advantages
over traditional banks. Direct lenders, for instance,
typically enjoy more flexibility to provide brokers with
an opportunity to customize each deal to their clients’
specifications. This advantage is particularly important
given the growing demand for projects involving
the rehabilitation or revitalization of older buildings.

Those tend to require the kind of short-term loans or
tailored financing that many direct lenders specialize
in arranging.

n n n

The speed and flexibility of nonbank lenders have
enabled them to become a go-to source for capital for
borrowers and mortgage brokers specializing in the
commercial real estate field. As the industry continues
to grow, it is important that commercial mortgage
brokers and borrowers understand the different types
of alternative lenders that are out there as well as the
advantages of choosing a nonbank lender. n

<< Alternative continued from Page 88

“The most successful alternative lenderscombine technology, particularly for an initialscreen, with a dedicated team that hasyears of experience.”